Tight supplies and high prices for natural gas have raised the question: will California have
enough of the clean-burning fuel for next winterÔs heating season, even as the State adds new
gas-fired generators to meet this summerÔs peak electricity demand?

A report just released by the California Energy Commission gives a qualified Ńyesń to the
question, provided improvements are made to the system that supplies natural gas. If current
plans to add supply do not materialize, however, the report suggests that State action may be
needed.

The source of the problem is outlined in Natural Gas Infrastructure Issues, a report released
on May 22, 2001. In it the Energy Commission notes that CaliforniaÔs natural gas supply system
was designed years ago to provide enough gas to meet winter peak heating demand.
Nearly 84 percent of the natural gas used in California comes from outside the State through
interstate pipelines. These pipelines can deliver slightly more natural gas than intra-state
gas pipelines -Šthose within our StateÔs borders -Šcan receive. As a result, there are
bottlenecks in getting some supplies to gas consumers.

This year, Pacific Gas and Electric Company (PG&E) and Southern California Gas Company
(SoCal Gas) are improving and expanding their intra-state pipeline systems to help eliminate
these constraints. According to the report, planned expansions of the interstate pipeline
network should increase natural gas delivery to the State beginning next year, and additional
improvements to the natural gas system should help to mitigate the current higher-than-normal
natural gas prices that California is experiencing.

Since California typically uses more natural gas in the winter than interstate pipelines can
provide, gas storage plays an important role in balancing supply and demand. If the amount of
natural gas put into storage in the summer does not keep pace with significantly increasing
storage withdrawals in the summer, the capability to meet the winter demand could be weakened.
For this reason the report recommends that the Energy Commission continuously assess storage
levels and monitor infrastructure improvements throughout the rest of the year.

Natural gas supplies in North America appear to be sufficient to meet demand in California and
the rest of the United States for the next 50 years. The report says that the Energy Commission
should continue to monitor drilling rig activity and production levels for the long-term outlook.
It also recommends that the Energy Commission, along with the Public Utilities Commission,
should find ways to encourage and increase the in-state supply of natural gas.

The Energy Commission will hold a hearing to allow the public and industry to comment on the
new report. The hearing will be held as follows: